Hulu Stock Forecast: Traditional cable television is rapidly dying out as more and more consumers switch to streaming services.
Of course, Netflix dominates the streaming video market, but a variety of competitors are challenging the industry leader.
So far, Hulu has been the only company to make a sizeable dent in the Netflix empire. It’s subscriber base is growing at a steady clip, thanks to a strong selection of original programming and a long list of fan favorites.
The rise of streaming video has piqued the interest of investors, and many have already put money into Netflix. However, Hulu’s impressive 2018 financial results have some convinced that Hulu is an overlooked opportunity. The question is, will Hulu continue to grow when new competitors enter the market? And if so, how can investors be a part of that growth?
What Does Hulu Do?
When it became clear that the future of home entertainment would be streaming video, major media companies knew they had to get on board.
In 2008, a group of them combined resources and launched Hulu as a joint venture to compete in the streaming space. There was talk of an IPO in 2010, but that never materialized. Today, Hulu remains a privately held company.
The concept was simple. Instead of selling their assets to other streaming services, the entertainment behemoths could offer their existing content to viewers through their own streaming service.
Unlike Netflix, which had not yet started investing heavily in original programming, Hulu’s parent companies already owned a massive library, giving Hulu an edge. By 2016, Hulu’s owners included Disney, 21st Century Fox, AT&T, and Comcast.
Disney’s acquisition of 21st Century Fox changed the ownership dynamic, giving Disney a majority stake in Hulu.
AT&T sold its share in April 2019, and Comcast is expected to follow. Both have plans for creating their own branded streaming services.
When the transaction is complete, Hulu will be wholly owned and controlled by Disney, which is also launching a separate streaming service called Disney+ in November 2019.
Will Hulu Continue to Grow?
The truth is that Hulu never generated a lot of interest from investors until the end of 2018.
As Disney gained control of the company, it’s value rose dramatically. In 2016, when AT&T/Time Warner initially bought into the joint venture, Hulu was valued at just under $6 billion.
In a November 2018 regulatory filing, Disney valued Hulu at $9.26 billion, and by the time AT&T sold its stake, Hulu was up to $15 billion.
The streaming service may not be as large as Netflix, but it has plenty going for it. As of January 2019, Hulu subscribers topped 25 million – a 50 percent increase over the previous year. In comparison, Netflix’s subscriber growth was just 26 percent for the same period.
Some of Hulu’s growth can be attributed to a lower monthly subscription fee, as well as high-quality original programming.
In addition, Hulu isn’t afraid to grow its subscriber base through massive introductory discounts, and it was able to attract a substantial number of new users through a promotion that bundled Hulu and the streaming music service Spotify.
When Disney+ launches, there is every reason to believe that subscribers will increase, as Disney is likely to bundle Hulu and Disney+ for a single monthly fee.
The change in ownership will mean changes for Hulu in coming years. The service will lose content owned by other companies, though it will still offer exclusive access to Disney and Fox programming.
Subscribers can log in from any device with internet access to enjoy unlimited on-demand viewing for a small monthly fee, which is an attractive proposition when measured against the cost of traditional cable and premium movie channels.
Perhaps more important, Hulu has powerful technology in place already, along with more than a decade of consumer data.
All signs point to a promising future for Hulu, now that it is fully controlled by the Disney Company.
What Challenges Does Hulu Face?
With video streaming on solid ground and a content library that includes Disney assets, Hulu is in a relatively secure spot for the moment. However, no company is completely safe from changing consumer tastes. There are a few issues that Hulu must contend with, and a mis-step could adversely affect its revenues.
First, Hulu doesn’t have the reach of rival Netflix, which is focused on growing its international audience through localized programming. Hulu, on the other hand, is only available in the United States. However, Disney’s CEO has mentioned plans to expand into Europe in coming years.
Second, Hulu cannot match Netflix’s investment in original programming – and original programming is a must for long-term success. The Hulu originals that have been released were well-received, so it is simply a matter of maintaining that momentum with more high-quality content.
Third, there is a limit to the number of subscription services a consumer wants to pay for monthly. New competitors are coming to market, and there is the possibility that current subscribers will decide to drop their Hulu service in favor of an alternate. A drop in subscribers is the biggest threat to Hulu, as it will leave the company unable to compete when it comes to investing in critical original content.